The National Association of Realtors reported that last month’s surge was the third consecutive month in which the pace of sales had shown improvement, with fourth quarter sales lifting the volume of full year sales to 4.26 million.

The pace of sales is positive proof of a real estate recovery, claimed the NAR’s chief economist Lawrence Yun:

“The pattern of home sales in recent months demonstrates a market in recovery. Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”

Even so, while the NAR might be encouraged, there is no denying that housing markets remain depressed. The median price of a home in December was given as $164,500, 2.5% less than 12 months ago. For the year as a whole, median prices were given as $166,100, some 3.9% less than 2010’s levels.

The NAR reported that foreclosures were continuing to have a negative effect on local markets, selling for an average of around 22% less than local market value last month, an increase on the 20% discount recorded in December 2010. Short sales were also hurting markets, selling at a 13% discount, although this was down from December 2010’s 16% discount.

Altogether, distressed homes amounted to 33% of all sales, 21% of them being foreclosures and another 12% being short sales.

One good piece of news however, is that inventories are getting tighter. Even with the flood of distressed properties to contend with, the NAR calculates that the supply of homes will only last for around 6.2 months at the current pace of sales, the lowest inventory level recorded since March 2005 and a notable improvement on the 8-month supply of one year ago.

Economists are hopeful that current market conditions will lead to a significant improvement in both sales and prices over the next few months. Speaking to CNN Money, Joseph LaVorgna of the Deutsche Bank pointed out a number of encouraging signs which led him to take a bullish view of current sales conditions:

“Coming on the back of a dramatic improvement in homebuilders’ sentiment, the latest existing-home sales report corroborates our thesis that a housing recovery has finally begun.”

LaVorgna’s views are also backed up by findings in the latest report from the US Census Bureau, which showed that new home construction was also on the up.